Game over? Industry suffers slowdown after decades-long winning streak

[Gamernyc78]

Game over? Industry suffers slowdown after decades-long winning streak

Sales growth in consoles and mobile apps hit as a darkening mood spreads across $200bn video games sector

www.ft.com

The $200bn video games industry is reckoning with its biggest slowdown in 30 years, as the huge growth driven by smartphone gaming and the latest generation of consoles reaches its limits.

Hardware sales are slowing, with Sony cutting its forecast for PlayStation 5 sales this week. Consumer spending on mobile gaming declined last year, down 2 per cent to $107.3bn according to Data.ai, which forecasts low single-digit growth in 2024.

The sense of crisis across the games sector is in sharp contrast to growth achieved during the Covid-19 pandemic, which allowed many locked-down consumers to spend their excess time and money on games. That peak marked the culmination of a winning streak for the digital entertainment business that began with the original PlayStation in the mid-1990s and was accelerated further by Apple’s iPhone.

Many in the gaming industry expected to bounce back quickly after 2022’s post-pandemic decline, last year did not deliver the growth initially hoped.

The latest quarterly numbers from some of the biggest publishers, including Electronic Arts and Take Two, has underwhelmed investors. Meanwhile, games developers have been forced to cut thousands more jobs this year after already slashing as many as 10,000 in 2023.

“There’s a lot of commercial anxiety: about growth, about profitability, about keeping budgets in check and about making an impact in the market when there are so many established products,” said Piers Harding-Rolls, games research director at Ampere Analysis, a market researcher. “We are in a much slower growth era.”

Concern surrounds the lack of new gaming devices being sold to expand the market. The uplift from the latest generation of PlayStation and Xbox consoles that were released in 2020 has waned and the global fall in smartphone sales means there are fewer new players coming online in what has become the most lucrative part of the industry in recent years.

After the PlayStation 5 surpassed 50mn units in December, Hiroki Totoki, Sony’s group president and interim head of its gaming unit, said this week that it was “entering the latter half of the console cycle . . . so we anticipate a gradual decline in unit sales from next fiscal year onwards”.

Heavy discounting of the PS5 in 2023 has already contributed to what Totoki called a “significant” drop in Sony’s gaming operating profits. He warned that Sony does “not plan to release any new major existing franchise titles” in the fiscal year starting in April, depriving it of any boost from bankable, big-budget games such as Spider-Man or God of War.

Microsoft, whose Xbox has been left a distant third behind Nintendo and Sony, said this week it was looking to sell more of its own games on rival consoles, as it looks to tap new sources of growth in an increasingly saturated market after paying $75bn for Activision Blizzard last year.

The widely anticipated launch of a new Nintendo console later this year may only accelerate the drop-off in PlayStation and Xbox sales, as players save up for the next new thing.

“There is a console-specific problem in the games industry: nobody is buying an Xbox, PS5 has peaked at the cost of significant discounting and everyone is waiting for Switch 2.0,” said Gareth Sutcliffe at Enders Analysis. “Consoles have proven that they are not a growth model for gaming — they top out at a very clear number.”

Phil Spencer, chief of Microsoft Gaming, pointed to a recent report by tech author and investor Matthew Ball, showing that the games industry grew by less than 1 per cent last year.

“That’s slower than inflation, slower than most GDP growth, which kind of means [gaming’s] relevance shrunk last year relative to what has happened in other [entertainment] categories,” Spencer said.

He added that the “fundamental opportunity” for the sector was finding new sources of growth among players who cannot afford a $500 console or a $70 packaged game. “How do we deliver games to people who don’t play and can’t play today?” Spencer said. “That’s as an industry where I think we should be focused.”

Cutting prices is a double-edged sword. The huge popularity of free-to-play online games such as Fortnite and Roblox consumes hours of playtime that had previously been spent on $70 titles. The strong network effects of multiplayer games, such as Call of Duty, also make it harder for new entrants to succeed. “Thousands of titles are hitting every month and the success rate is very low,” he said. “You’re faced with significant challenges in trying to break new product into the market.”

The rising costs of developing blockbuster games has also raised the stakes. “When you’re talking about a budget that’s $100mn plus, even for a big company, if you miss with two or three of those then commercially you’re on the ropes,” Harding-Rolls said.

That has driven a Hollywood-style dependence on rebooting the same big franchises by Sony, Microsoft, Electronic Arts and other big games companies. At the same time, entertainment giants are showing a renewed interest in gaming — adding new competition for existing players in a shrinking market.

Disney made a $1.5bn investment in Fortnite’s creator Epic Games this month to create what the studio’s chief Bob Iger called “a huge Disney universe that will be for gaming and for play”, while Netflix is also expanding its games offering.

“Just as we take our IP from our movies and our television and have them expressed in our parks, this is a great way to do it in games,” Iger told analysts after the Epic deal was announced, pointing to demographic trends that showed younger consumers were spending just as much time on games as they do on TV and movies.

“The conclusion I reached was we have to be there, and we have to be there as soon as we possibly can in a very compelling way.”

 

[Snes nes]

Imagine a era where we have a ton of games to choose from. Sounds great on paper but in practice they all start blending together and make it hard to find newer games in a sea of trash so people just stick to established franchises and those franchises are faltering due to overmonetization and bad business practices. The single most thing thats taking the fun out of gaming is the internet mainly. The idea of patching everything all the time makes the products over engineered and artificial feeling stuff like esports doesn't help the wider sphere of gaming imo.

 

[Yurinka]

It isn't game over.

Basically there are four reasons that stopped growth:

1. In mobile gaming, the part that provides the majority of gaming revenue, got seriously fucked by the 'privacy' stuff that now doesn't allow game ads accurately target the type of people you want to see the ads: people from certain contries, age range and tastes that devs knew play that type of games. The accuracy of these ads, which was their main user acquisition source, did help them have a great ROI and to get mostly quality users. They have been figuring out how to sort this is recent years.
2. Big games, the ones who make most of the money, take longer to be made and are way more expensive, meaning normally each time releases less games per year.
3. Inflation and other costs made a ton of things way more expensive: components for hardware and retail game copies, higher cost of fuel made shipments of hardware and retail games, hardware needed for development etc. That impacted the profitability of the publishers and devs, keeping them less margin to reinvest
4. Many investors moved away a good part of their tech investment in tech from gaming to AI, or simply reduced their investments due to global crysis and huge inflation. This, combined with the previous point and the high increase of the amount of dev studios in recent years made publishers to don't be able to cover/fund the same amount of projects, specially when the yearly revenue is stagnant and due to consolidation is focusing in less hands than before.

Most of them will be solved over time, in some cases because were directly or indirectly related to the covid or coming back from covid and the temporary thing in mobile regarding ads. They'll also find some way in AAA to reduce costs like making again more shorter games (those 10-20h linear games that were so popular before everything became giant open worlds) or get help from AI to shorten development times. We'll also see more mobile games expanding to PC and console, and more console+PC games expanding to mobile to increase their markets.

 

[anonpuffs]

The big reason why gaming isn't expanding is the economy sucks. People don't have the disposable income to invest in gaming because of our shitty economic system where only the big billion dollar corpos win.

 

[Nhomnhom]

Honestly, took long enough, so many toxic devs like Bungie, ABK and EA with their monetization tactics to nickel and dime players treating them as if they were cattle.

Turn gaming into a boring time waste, with stressful FOMO and people will burn out and leave.

Quality gaming has never been cheaper but most people aren't able to navigate the ocean of trash to get to the few games that are worth their time.

 

[Nix]

Is there an industry that keeps growing? You’re bound to hit the ceiling at one point, what matters now is a way to monetize the current players which is why we see a lot of companies go the GaaS route.

 

[Yobo]

The issue isn't gaming, it's the economy is destroying low to middle income people particularly in the past year

 

[Sunrise Ninja]

The bad economy + excess deaths = less money

Cant buy things if your dead

 

[Gamernyc78]

The issue isn't gaming, it's the economy is destroying low to middle income people particularly in the past year

Exactly and inflation is making ppl spend less on leisure stuff tht isn't expensive ass food we now have to save up for.

 

[J_Paganel]

Honestly, took long enough, so many toxic devs like Bungie, ABK and EA with their monetization tactics to nickel and dime players treating them as if they were cattle.

Turn gaming into a boring time waste, with stressful FOMO and people will burn out and leave.

Quality gaming has never been cheaper but most people aren't able to navigate the ocean of trash to get to the few games that are worth their time.

Yes, the market is overheated, games compete with each other, and there is competition from other areas of content.

Even if a game is good, there is no guarantee that it will be seen by the target audience of buyers. Marketing is also expensive nowadays, and there is a high chance of making mistakes during the marketing campaign.

 

[Nhomnhom]

Yes, the market is overheated, games compete with each other, and there is competition from other areas of content.

Even if a game is good, there is no guarantee that it will be seen by the target audience of buyers. Marketing is also expensive nowadays, and there is a high chance of making mistakes during the marketing campaign.

It's just some more relaxing and inviting to sit down and watch a series than to log in in a game, feel the FOMO, see daily quest, pressure work on some season pass and shit like that.

Also, some of the great games are ridiculously big for the money you pay, I played multiple hundreds of hours last year of just Project Zomboid and Baldur's Gate 3. Those two games combined didn't cost me $70.

 

[Gods&Monsters]

They should blame Xbox. Phil single-handedly killed his own platform. 20 millions people that were buying games are gone for 3rd-parties.

The whole console market relies on Playstation only to sell games and make money.

 

[xollowsob]

They should blame Xbox. Phil single-handedly killed his own platform. 20 millions people that were buying games are gone for 3rd-parties.

The whole console market relies on Playstation only to sell games and make money.

And yet, Sony have failed to hit their sales targets for both.

The industry is contracting faster than most realise. The console market is contracting faster than that.

By the end of this gen we will have ~2010 levels of players on consoles, a correction that is much needed.

 

[Nhomnhom]

They should blame Xbox. Phil single-handedly killed his own platform. 20 millions people that were buying games are gone for 3rd-parties.

The whole console market relies on Playstation only to sell games and make money.

And yet the entire video game media like to shill for Xbox and shit on PlayStation for the wrong reasons.

And yet, Sony have failed to hit their sales targets for both.

The industry is contracting faster than most realise. The console market is contracting faster than that.

By the end of this gen we will have ~2010 levels of players on consoles, a correction that is much needed.

Who would've guess that after starting to port all their games to PC and exposing their games to rampant piracy they would have a hard time?

Long have they been devaluing their games as well unlike Nintendo, when Sony in fact had a great advantage over Nintendo (all Nintendo games are exposed to piracy and PC regardless of Nintendo's wishes by nature of their ancient hardware).

With the PS4 Sony pretty much had everything lineup for them to be stronger and more resilient than ever.

 

[Batzy]

Weird, the chart includes the covid years...The years only morons think it was natural growth.

 

[Gods&Monsters]

And yet, Sony have failed to hit their sales targets for both.

The industry is contracting faster than most realise. The console market is contracting faster than that.

By the end of this gen we will have ~2010 levels of players on consoles, a correction that is much needed.

Sony is breaking records for games sales on their own platform. There's also more profit-sharing with publishers with the new PS+ Extra.

It's Xbox that totally collapsed and makes the whole market look worse than it is. It's dead weight for publishers.

Good luck to the market if they think they can rely on Steam to sell traditional games.

 

[Nhomnhom]

Imagine if third party devs didn't have to bother with Xbox Series S and Xbox Series X ports and the PS5 had an extra 20m units sold? Xbox is a cancer to the gaming industry.

Same thing for PC, imagine if OpenGL had been the industry standard along with other multiplataform tech, with games and game stores being made to run on MacOS/Linux/Windows, hardware manufactures being able to release gaming hardware without having to pay MS for a Windows license.

 

[Box]

Imagine a era where we have a ton of games to choose from. Sounds great on paper but in practice they all start blending together and make it hard to find newer games in a sea of trash so people just stick to established franchises and those franchises are faltering due to overmonetization and bad business practices. The single most thing thats taking the fun out of gaming is the internet mainly. The idea of patching everything all the time makes the products over engineered and artificial feeling stuff like esports doesn't help the wider sphere of gaming imo.

Thats exactly what happened to mobile gaming, it started off decent before it became the mess it is today.

 

[Gamernyc78]

Imagine if third party devs didn't have to bother with Xbox Series S and Xbox Series X ports and the PS5 had an extra 20m units sold? Xbox is a cancer to the gaming industry.

Same thing for PC, imagine if OpenGL had been the industry standard along with other multiplataform tech, with games and game stores being made to run on MacOS/Linux/Windows, hardware manufactures being able to release gaming hardware without having to pay MS for a Windows license.

Exactly when ppl say Xbox exiting means less competition I laugh. Hasn't been competition just reactions from Xbox tht hasn't helped gaming and Sony running away between the two with the crown and Nintendo doing their own thing reaping tons of profits with mid hardware.

 

[xollowsob]

Sony is breaking records for games sales on their own platform. There's also more profit-sharing with publishers with the new PS+ Extra.

It's Xbox that totally collapsed and makes the whole market look worse than it is. It's dead weight for publishers.

Good luck to the market if they think they can rely on Steam to sell traditional games.

Think bigger than Sony. Sony are doing well for now because they're riding on the coat tails of a record breaking generation. Just like they did with PS2-PS3, just like Microsoft did with the Xbox One or Nintendo with the Wii U, etc.

They all did well before the market changed and pulled the rug from under them. A new player could enter, Microsoft could pull a blinder, the switch 2 could flop and with the big 3 facing a shift in the sands who knows what could happen.

The market is changing, the bubble hasn't popped, but it's stretched to breaking. It's like poetry, it rhymes.